For many advisers, conducting a client survey is like standing naked in front of a full-length mirror. It's a good reality check, but frankly we'd rather avoid it. The fact is that client surveys not only demonstrate your commitment to clients, but they can positively impact your bottom line.

According to Barry McNulty, a Raymond James adviser in Toronto, surveys boost profitability because they can lead to referrals, higher retention rates, and consolidation opportunities. "Surveys reveal the true picture and provide a clear indication of untapped opportunities," McNulty says.

Ross Levin of Accredited Investors in Edina, Minn., also has used a client survey to change the way his business runs. "Our results were positive, and yet some of the specific points were surprising," he says. "Some clients wanted to meet less often than we currently do. Also, some clients wanted more general communication. After the survey, we worked with our staff to determine optimum meeting schedules. We also now send out a regular e-mail update on our feelings on the market, interest rates, or other relevant data."

Despite such enhancements, only about a third of advisers have surveyed their clients in the last 12 months, according to research by AdvisorImpact. And while some advisers point to the lack of time or expertise as the primary obstacles, the fear factor tends to top the list of self-imposed barriers. Some advisers are afraid to hear what their clients will say--an apprehension common in both good and bad markets.

But research doesn't support the fear factor. Theoretically, in a competitive market like financial services, existing customers on average tend to be highly satisfied, or else they would leave. Our research confirms that argument on a practical level.

During the last 12 months AdvisorImpact, working together with Moss Adams, has surveyed more than 10,000 clients on behalf of financial advisers across North America. No adviser got an overall satisfaction rating of less than 4 out of 5. Yet that process also revealed that between 2% and 10% of clients are, in fact, at risk of defecting. This is information you want to know.

A comprehensive study published in The Journal of Consumer Research in 2002 reached some strong conclusions in favor of surveys. The study found that clients surveyed for a large financial institution were more than three times as likely to have opened new accounts, half as likely to have defected, and were more profitable than clients who were not surveyed. The study noted that these results, which peaked after three months, extended for up to 12 months after the survey.

At least two factors can explain these results. First, surveys remind clients that they appreciate the service you offer. In general, clients are unlikely to have spontaneously positive thoughts about you unless asked explicitly. Second, by asking clients questions about specific services, you increase their awareness of those offerings.

There are three ways that you can elicit response from clients. You can take an ad hoc approach and ask them for comments at the end of a meeting. You can conduct a telephone survey. Or you can conduct a written survey.

To decide which route to take, you'll need to weigh the costs of the program against the depth of information you will receive and the extent to which answers are provided honestly. In general, written surveys tend to be the best option. Although more expensive, they let you ask a large number of questions, give clients time to respond thoughtfully, and offer the option of anonymity.

For the do-it-yourselfer, the first challenge is knowing what questions to ask your clients. To start, think beyond "satisfaction." A properly structured survey helps you uncover client expectations, identify cross-selling and consolidation opportunities, pinpoint those clients who are willing to provide referrals, and gather valuable intelligence about any current or planned communications or activities.

To cover all the bases, ask questions in five specific categories:

1. Focus on service satisfaction, both generally and specifically;
2. Probe client expectations regarding contact level;
3. Assess interest in learning about different products and services;
4. Determine client preferences about how you communicate; and
5. Ask for profile information to help you populate your database.

Even if you cover all of your bases, there are good questions and bad questions. Good questions provide you with specific and targeted information. Bad questions are vague, difficult to understand, or lead to client responses that are difficult to interpret. (See chart below for examples of questions in each category.) For every question on a survey, you should know what you will do with the results. For example, if you don't control client statements at your firm, don't ask about satisfaction with client statements on the survey.

If you do go it alone, the process of surveying clients can be onerous but rewarding. Given the investment of time and money, make sure you fully exploit the results. You can get the biggest bang for your buck by:

• Sending a follow-up letter to all clients, highlighting positive feedback and identifying any changes you plan to make as a result of the survey.
• Surveying clients every 18 months and tracking your progress.
• Summarizing your results for centers of influence and prospects. Testimonials are helpful, but research data is seen as more objective.

While it can be difficult to compare directly the costs of outsourcing the survey process to doing it in-house, you will typically spend more on your own. If you don't have them on staff, you will need to hire a writer and a graphic designer to prepare the questionnaire and then pay for printing and mailing the survey, entering the response data, and analyzing the results. As an example, our Client Audit process to survey 200 households, with an expected 30% response rate, would cost approximately $2,100, excluding outbound postage. A similar in-house effort could cost planners more than twice that amount.

Tom Trimble, an adviser with Canadian brokerage firm ScotiaMcLeod, thinks outsourcing the survey process is a good idea. "Doing surveys yourself is a mistake," he says. "They either won't get done, the results will be difficult to interpret, or the results will be skewed because you would be inclined to ask the wrong questions. Or more importantly, you'd inadvertently skew the wording of the questions to get the answers you want to hear."

Whichever direction you go, here's a word of caution. The American Marketing Association has a clear code of ethics regarding marketing research, including satisfaction surveys, and that code was written into law. You cannot sell services to clients under the guise of conducting research. Therefore, if you plan to ask questions about client needs and then use that information to follow up with them, make your intentions clear in the cover letter and reiterate that the survey can be anonymous.

In the final analysis, it's action that counts. "Since surveying our clients, we have developed a sharper picture of our strengths," says Jennifer Hatch, an adviser with Christopher Street Financial in New York. "We understand our weaknesses and can respond before our clients decide to bail. For example, we were able to understand the level of service that each of our advisers was providing and discovered that [it] varied drastically. As a result, we now set an explicit service standard for everyone in the company."

"If you don't act on the results of the survey or implement the requisite changes, then that's a big negative," says Mark Farris, an adviser with T.D. Waterhouse in Edmonton. "If you do implement the changes, there are no negative consequences of a survey."

Julie Littlechild is president of AdvisorImpact, a firm that provides practice management training and tools to financial advisers across North America. For more information on the firm's client survey program, offered in partnership with Moss Adams, go to www.advisorimpact.com.